Buy now pay later companies Zip Co and Sezzle have terminated their merger agreement and Zip has agreed to make a US$11 million termination payment.
Both companies will now focus on reviewing their expansion plans, cutting costs and getting bad debts under control in a market where the outlook for BNPL no longer looks so favourable.
The companies entered into a merger agreement in February, in a deal that would have seen Zip acquire Sezzle in an all-scrip transaction worth around $491 million at the time it was announced.
Since then Zip’s share price has fallen around 85 per cent to 53 cents a share at yesterday’s market close and Sezzle’s has fallen around 90 per cent to 26 cents.
At the time, Zip said the deal would enhance its scale and product offerings and give it the capacity to grow more quickly in the United States, where Sezzle does most of its business.
The combined group would have had total transaction volume of $10.4 billion – Zip contributing $7.9 billion and Sezzle $2.5 billion.
Combined customer numbers would have been 13.3 million (Zip 9.9 million and Sezzle 3.4 million) and combined merchant numbers 128,800 (Zip 81,800 and Sezzle 47,000).
Zip made a loss of A$172.8 million in the December half-year. Net cash used in operating activities was $25.3 million.
Bad debts and expected credit losses were $148.3 million – an increase from $29.5 million in the previous corresponding period. Net bad debts written off rose from 1 per cent of underlying volumes in the December half 2020 to 2.8 per cent in the latest half.
It said in its most recent update that its aim is to be profitable in 2023/24 and it is taking steps to achieve that goal.
These include reviewing its capital allocation for its “rest of the world” businesses and changing its risk settings to improve its credit management.
In May, Sezzle reported a net loss of US$27.9 million in the March quarter – up from US$11.3 million in the previous corresponding period.
Income grew by 6.2 per cent year-on-year to US$27.6 million for the quarter, while expenses grew by 54.2 per cent to US$53.7 million.
Sezzle said it would cut its headcount and scale back operations in Europe. It is winding up a payment processing business in India and will sell its Brazilian business to local management.